The odds of the Bank of England raising interest rates again next month have jumped.
The money markets indicate there is a 97% chance that the BoE lifts Bank Rate by a quarter of one percentage point to 4.5% in May – up from an 82% chance yesterday.
The markets also imply there’s a good chance that rates will hit 5% by the autumn.
The Bank will be concerned that UK inflation looks to be stickier than hoped.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “After a surprise increase in February, CPI inflation resumed its downward path in March, falling to 10.1% from 10.4%. The fall in the annual rate was more than accounted for by falling petrol prices. However, mitigating this was a further acceleration in food price inflation, which reached its highest level in over 45 years.
“March saw both core and services sector inflation remain unchanged at 6.2% and 6.6% respectively. Stickiness in these measures, the latter of which the MPC often cites as an indicator of domestically generated price pressures, will concern the committee in advance of its May meeting.
“The fact that this follows the latest labour market data [yesterday], which showed healthy jobs growth and a surprise pickup in private sector wage rises, and a stronger-than-expected performance from the economy, will probably tip the balance towards another rate rise next month.”